3 Stages Of Foreclosure
There are 3 stages to the foreclosure process: Pre-foreclosure, foreclosure auctions and bank owned, or real estate owned (REO) properties. Each stage of the foreclosure process can yield substantial profit when the investor understands how to approach each opportunity while using creative financing techniques to purchase and sell.
Pre-Foreclosures
This stage is where a loan is in default, but has yet to be foreclosed or sold at auction. Preforeclosure laws vary in each state; in some states you can find lis pendens posted at the county of residence. Most owners at this stage are concerned about bankruptcy and their credit rating. The objective is to find pre-foreclosures and negotiate a solution that will benefit all parties involved.
 save the homeowner from a foreclosure and/or bankruptcy
help the bank/lender avoid a bad loan and recoup their money take over the property, make any necessary improvements and sell at a profit
It's important when you're buying pre foreclosures to conduct basic research on the properties to ensure that your offer is acceptable and within local legal guidelines.
locate the loans in default
evaluate properties by location, price and their overall condition
narrow the prospects down to a few
physically inspect the property
determine the owner's needs, his motivation for selling and their flexibility
calculate the market value of a property, it's fix-up costs and potential profits
propose a default work around by negotiating directly with owner & bank/lender
close the deal on the property, fix it up if need be, then flip it for quick gain
Foreclosure Auctions
These are properties which are now officially in default and are being sold to the highest auction bidder.
Buying foreclosures from auctions is probably the second best method to purchase real estate under market value.
Property auctions are often conducted from the county courthouse steps. Buyers must be physically present at an auction and they are required to pay a small deposit down, w/balance in 30 days, and/or 100% of the total sales price in cash.
Smart buyers should already be familiar with the property they intend to purchase as there is rarely any time to examine it during the auction. Note that you may also be bidding in competition with professional real estate investors and at times even the lender selling the property will submit bids during the auction.
Auctions afford those with financing already in place the advantage of immediate possession and property ownership. However you must pay within the allotted time; always have finances in order before participating at auctions so as not to lose your down payment. The property would then be sold to high bidder at another auction.
Recommendations:
visit one the local auctions in your area and observe its bidding procedures
find out how much down payment is required to purchase and payment deadlines
determine the value of the target property you intend to bid on
arrange for financing an auction purchase well in advance
properties are sold at auction in "as is" condition (so research it before bidding)
REO (Real Estate Owned)
These are properties which have already gone to an auction and since there were either no bids, or insufficient bids, have become a bank owned home, aka bank foreclosure (or REO). Buying Real Estate Owned homes mainly calls for dealing with the lender or their agent. REO is a popular, safe means for foreclosure investing.
REO indicates that a lender has reclaimed a property and established control over it to minimize loss. Buying REO foreclosures is an easy method to grab distressed properties. Lender's are constantly listing any properties that didn't sell at an auction to relieve themselves of excess inventory and it's simple to locate them.
Banks often enlist a real estate broker or agent to handle selling their the REO's simply because they may have so many. Lenders are extremely motivated to sell REO inventory, especially when they have an excess of properties. There are many ways for a investor to negotiate creatively with a lender on a REO property's price.
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